Copper extractants have good growth and profitability. A successful merger and acquisition of Zijin Pharmaceutical will significantly increase the company's profits. On January 30, the company's 2nd Extraordinary General Meeting of Shareholders in '24 voted to pass a bill to acquire 61% of Fujian Zijin Mineral Processing Pharmaceutical Co., Ltd.'s shares and related transactions. Zijin Pharmaceutical specializes in copper extractants. Since the steady increase in copper demand and the popularity of hydrometallurgy have driven the development of copper extractants, and Zijin Pharmaceutical's advantages in terms of product cost performance and personnel service are expected to gradually increase its market share, we believe that a successful merger and acquisition of Zijin Pharmaceutical will significantly increase the company's long-term profits. We estimate that the company's net profit for 23-25 will be 0.84/1.55/ 212 million yuan, corresponding to the 23-25 PE of 34/19/14 times. Comparable companies' average PE value for 24 years is 18 times higher. Considering the scarcity of the company as the first A-share listed company for heavy metal pollution prevention and control in China, and the broad market for non-ferrous heavy metal pollution prevention and control, the company was given 26 times PE in 24 years, corresponding to a target price of 42.38 yuan (previous value of 55.42 yuan), maintaining a “buy” rating.
Copper extractants are used in wet copper smelting. The main methods of metal smelting with good market growth prospects include pyrometallurgy and hydrometallurgy. Take copper as an example. By 2020, the world's hydrometallurgy production using the “leaching-extraction-electrodeposition” process had reached 3.9 million tons, accounting for 16% of total copper production. Compared with pyrometallurgy, hydrometallurgy does not require a high-temperature firing reaction process, and has the advantages of lower energy consumption, less pollution, and easier operation. In the context of energy saving and environmental protection policy support and the gradual decline in global ore grade and copper oxide ore becoming the main raw material for copper smelting, hydrometallurgy is expected to gradually replace pyrometallurgy and become the mainstream of metallurgical processes. Referring to the CommScope Chemical announcement, the global copper extractant market space is about 16,000 tons in 2020. It is expected that by 2025 and 2030, the market space will increase to about 21,400 tons and 31,800 tons, and the CAGR will reach 7.1% in 2021-2030. Copper extractants have good growth prospects.
Copper extractants account for a relatively low share of copper prices and have good profitability
Referring to Kangpu Chemical's prospectus, its copper extractant usage is about 3-5 kg/ton of copper production. According to Zijin Pharmaceutical's 2023 cost of 32.27 yuan/kg and gross profit margin of 41.73%, the price of the company's copper extractant was about 55,400 yuan/ton (excluding tax) in 2023. Combined with the average price of copper of about 69,000 yuan/ton since January 24, the price of copper extractants accounts for about 0.4% of the copper price. Downstream is not sensitive to copper extractant prices, which helps the copper extractant industry maintain a good gross margin level.
Zijin Pharmaceutical's global share of copper extractants is expected to gradually increase
In 2023, Zijin Pharmaceutical's copper extractant output is about 1924.36 tons, with a production capacity of 3,400 tons. In addition, the company also has 2,000 tons of beneficiation agents, 2,000 tons of phosphoric acid extractants, 1,000 tons of lead beneficiation capacity, and technical research and development capabilities for mineral processing additives. Global demand for copper extractants mainly comes from overseas regions such as Chile and the Democratic Republic of the Congo (DRC). The main competitors are BASF, Solvay, Kangpuchem, and Zijin Pharmaceuticals. Compared with overseas giants, domestic companies have an advantage in terms of service and product cost performance. As the company's copper extractant production capacity climbs, the scale advantage is reflected, and the market share and net interest rate are expected to gradually increase.
Risk warning: New technology marketing is unfavorable, accounts receivable balances are large, and subsidiary expansion falls short of expectations.